Feasibility Report
On
ITC Foraying into Probiotics Milk Submission Date: 24th Oct, 2010

Submitted to:
Ms. Asha Nataraj
Product Manager, ITC India

Submitted by:
Anuj Naithani | Anurag Singh | Sriram | Yukti Mital ABM 07012 | ABM 07013 | ABM 07014 | ABM 07015

Indian Institute of Management, Lucknow

LETTER OF TRANSMITTAL

To
Ms Asha Nataraj
Product Manager
ITC India

From
Anurag Singh
Indian Institute of Management
Lucknow, UP

25th October, 2010
Dear Ma’am
I take great pleasure in submitting the report on the feasibility of ITC in entering the Probiotics milk and milk products segment. The report comprehensively addresses the issue of brand extension and analyses the competitor strategy.
The results and recommendations are based on the findings of consumer survey, focused group discussions, In-depth Interviews and the secondary research.
I hope that the recommendations will be helpful for the future strategies for the firm.
If you have any questions and/or comments regarding the interpretation of this report, please let me know.

Yours sincerely,
Anurag Singh

ACKNOWLEDGEMENT

We express sincere gratitude to our mentor Prof. Payal Mehra for her guidance, patience and encouragement throughout the development of the report and providing us this opportunity. We are indebted to her for the motivation and freedom enjoyed throughout the project.
We also extend our appreciation to Librarian Mr P.Kamath for his valuable support and insights during the entire duration of the project.

Table of Contents
EXECUTIVE SUMMARY i
Introduction 1 Purpose Statement 1 1.2 Problem Questions 1 1.3 Industry Profile 1
2. Research Methodology 2 2.1 Secondary Research 2 2.1.1 Market Analysis: 2 2.1.2 Competitors Analysis: 3 2.1.3 SWOT Analysis: 4 2.1.4 PEST Analysis: 5 2.2 Primary Research: 5 2.2.1 Sampling: 5 2.2.2 Survey Technique: 5 2.2.3 Target Group: 6 2.3 Results: 7
3.0 Recommendations 7
Appendix 1 A1
Bibliography

EXECUTIVE SUMMARY
Probiotics are considered to be the vital healthcare concept of the 21st century. Extensive consumer research into daily problems of consumers revealed that due to sedentary lifestyles, dietary habits and the pressure and stress of modern, fast paced life, consumers daily face problems with their digestion. Processed milk industry in India is in its nascent stage. The organized sector accounts for 13 % of the 94.5 million tonnes annual milk production. A micro level study reveals that the probiotics products account for less than 1% of the organized market share in sales. With the growth of Indian middle class and changes in consumption patterns, the Nutraceuticals health drink segment poses a prospective growth market. An emerging Indian middle class and changing lifestyle in urban India opens plethora of opportunities for expansion in health drink vertical.
This report examines the feasibility of ITC Ltd. to enter the probiotic milk and milk products category. Our analysis reveals that the company can leverage its brand image and sound operations and supply chain structure to foray into the niche segment. With a large scope for penetration and limited competition, ITC should extend its product portfolio to dairy segment. A primary research was conducted to analyse the consumer perception about the probiotics with regards to ITC. The sample size consisted of 50 people with a monthly salary in access of Rs25000. The data limits in its extent of geographical and demographic diversification.
Following are the important results of the consumer survey and focussed group discussions: 1) Majority of the sample is willing to spend around Rs25 per day on health drinks. 2) People perceive probiotics as a natural product fortified with beneficial microbes and having limited chemical concentration. 3) People associate brand ITC with cigarettes. 4) People are lesser informed about the probiotics and majority have not consumed the existing products.
On the basis of analysis done, we recommend the following: 1) Company should launch a sub brand to foray into the probiotics milk market and difference itself from brand ITC. 2) The product should target the middle class, upper middle class and upper class segments as they have greater aspirations and capacity to spend. 3) The product should target Tier 1 cities, where the households experience a busy lifestyle. 4) Probiotics can be positioned as a nutraceutical with proven health benefits and zero chemicals. 5) The product should be aggressively promoted as limited information is available to people. Company can utilize its excellent supply and distribution network to procure the raw milk and market in the high end stores. 6) The product should not promote the product as a substitute to traditional milk; instead use it as a supplement with added health benefits.

Introduction

Probiotics are considered to be the vital healthcare concept of the 21st century. Extensive consumer research into daily problems of consumers revealed that due to sedentary lifestyles, dietary habits and the pressure and stress of modern, fast paced life, consumers daily face problems with their digestion. As people become increasingly health conscious, preventive medicine in the form of probiotic foods is gaining popularity. While already widely known and put to extensive use by Asians and Europeans, the trend for probiotics is catching up with the world populace. Probiotics is witnessing extensive scientific research work as new probiotic strains and new applications are under development. Apart from gastrointestinal problems, new target areas for probiotics include inflammatory diseases, lactose intolerance, allergy prevention, cholesterol reduction and prevention of colon cancer.

Purpose Statement
The objective of the project is to analyse the current market condition of the Probiotic products and evaluate the firm’s feasibility to enter into this segment. * To extend new product category. * To study how exactly the consumers evaluate different product categories based on factors consumer survey and focus group discussion. * To bring out the impact of brand reputation of the core brand and perceived services quality on the new product extension. * To analyse industry through market and competitor analysis.
1.2 Problem Questions * Whether the proposed extension stands merit or not? * Do people associate milk with brand ITC?

1.3 Industry Profile

The probiotics market, though at a very nascent stage, is practically on the boil, with almost four FMCG giants: * AMUL * Nestle * Mother Dairy * Yakult 2. Research Methodology
Our research was majorly divided into two segments: 1. Secondary Research 2. Primary Research
2.1 Secondary Research
We analysed milk market looking into the probiotics segment through market research and competitor analysis. Since this is niche market and lesser players, this opens plethora of opportunities for expansion and growth.
2.1.1 Market Analysis:
The global market for probiotic foods is $14 billion. It is expected to rise to $17 billion by 2013. Asia and Europe are the biggest markets for probiotic foods with countries such as Japan contributing almost 40 per cent. Some supplement companies in order to increase their market share are making health claims that are misleading and lack scientific evidence. This may influence the market negatively, as consumer confidence in probiotics products gets tampered and it requires high marketing efforts to get them back to the market.
The Indian market remains minute by European standards with its worth at a mere 20.6 million rupees (€320,000), but it will push through the €1 million mark around 2013-2014 and be worth €1.3 million in 2015. In contrast to many other markets, the major format for probiotic sales in India to date has been food supplements, rather than the most popular formats – spoon able and drinkable yoghurts. Probiotic supplements account for 49 per cent of sales with foods and beverages at only four per cent. Globally, food and beverages account for 56 per cent of probiotic sales. The worldwide market for probiotics is ripening fast. However, in India, the market has just been conceived with leading companies like Amul, Nestle, Yakult and Mother Dairy making the first move.
Branded yogurt and milk drinks are growing at 33 per cent and 14 per cent respectively, thus, showing a good potential for probiotic foods. While yoghurt and yoghurt-based products are growing at 14-15 per cent, probiotic yoghurt is growing at 25 per cent globally. The market size of probiotic product in the country was estimated to be around Rs. 120 Crore in 2007, growing at the rate of 40% annually. India has a huge middle class with spending power, growing focus on eating right because of increasing lifestyle disorders and a long history of consuming products such as yoghurt which contains live bacteria that make India a good market for probiotics. India’s probiotics market has been highlighted by researcher Frost & Sullivan as a “major growth market of the future”, with annual growth of 22.6 per cent until 2015 which means that it will quadruple by 2015.

Fig 2.1: Market share in Probiotics segment

2.1.2 Competitors Analysis:
Amul was the first to foray into the category with its probiotic ice creams. Then, it was the turn of Nestle with the launch of its probiotic yoghurt followed by Mother Dairy and Yakult announcing their entry into the category. Amul is present in many dairy categories to which probiotic elements can be easily extended when compared to other competitors. The other advantage for the company is its formidable distribution hold. Amul is using its existing distribution channels to market its probiotic range. They are also spending heavily on awareness of the probiotic range.
The total packaged curd market in India is estimated at 40,000-60,000 tonnes per annum, of which Nestle has a 30 per cent market share. There was a marketing and pricing war of sorts happening between Nestle and Mother Dairy, since both have forayed into the probiotics category through yoghurts. While Nestle’s NesVita is priced at Rs 15 for a 200 gm pack and Rs 25 for a 400 gm tub, the home-grown Mother Dairy has strategically priced its probiotic offering at just a rupee lesser, at Rs 14 and Rs 24 for 200 gm and 400 gm respectively. Mother Diary’s B-Activ is also retailed through a smaller 90 gm pack at Rs 6, a size that its rival Nestle is not present in. On the marketing front too, both companies seem to have locked horns, focusing on on-ground activities such as outdoor advertising on billboards, at bus stops and through pamphlets educating potential customers about the advantages of consuming probiotic yoghurt every day.
Mother dairy is targeting the BPO crowd and doctors to create awareness about the product range. Mother diary’s tagline for advertisements is ‘Happy Tummy to U’ which attracts people. They have a market share of 15 per cent in the probiotic range and are planning to increase the number of point of sales through expansion to other cities.
Yakult is available in Delhi, NCR, Punjab and Jaipur. It is costlier than its competitors. Because of its strong presence in probiotic segment across the world, it is banking on its reputation and brand image. It boasts of having 6.5 billion of the live bacteria in each pack, much more than any other company’s current offering. With more and more Indian people getting exposed to the Western life, there is already an understanding of Yakult’s products in India. It is selling its product through the door-to-door distribution. Globally, more than 40 per cent of the sales for Yakult come from this channel. It is also sold through retail. They are expanding to other cities like Chennai, Kolkata and Hyderabad to increase the customer base. The Yakult probiotic drink is already available in Delhi, NCR, Chandigarh, Jaipur, Pune, Mumbai and Bangalore.
In the pharmaceutical space, Ranbaxy will be marketing probiotic dietary supplement among gastroenterologists and other gastro specialists. There are other local players confined to particular region like Aavin in Tamil Nadu which has a very strong base.
Some of the problems faced in this segment are ICMR guidelines, Lack of awareness among public, high price, fear in minds of people about its harmful effects. Indian market is very challenging owing to supply shortages, poor cold chain, storage facilities, poor infrastructure, and underdeveloped and complicated distribution channels. Performance in the food and beverage probiotic market is still dominated by issues in strain stability, low shelf life of products, and the development of probiotic application technology.

2.1.3 SWOT Analysis:

Fig 2.2: SWOT Analysis

2.1.4 PEST Analysis:

Fig 2.3: PEST Analysis

2.2 Primary Research:
We did a primary research through consumer survey using a questionnaire and then analysed the survey to recommend the ITC entering into the probiotic segment.
2.2.1 Sampling:
We surveyed 50 respondents using the questionnaire attached. We followed the Stratified Sampling Distribution to focus on higher middle class and upper class segment which are very health conscious.
2.2.2 Survey Technique:
The technique we used as a part of Primary Research are: * Consumer Survey * Focused Grouped Discussion * drIn depth Interview

2.2.3 Target Group: Our target group was upper middle class and upper class people who are health conscious and ready to invest for heath drinks. These are the consumer who cares a lot about their health and do not mind spending money.
Promotion: We will promote our product as health drink which has many health benefits like it controls Blood Pressure, Maintains cholesterol, anti-carcinogenic and other minor gut infections. It will be promoted as a Nutraceuticals which means a product that provide nutritional as well as pharmaceuticals benefits. A separate Branding will be done looking into the target group.
Graphs showing the results of; consumer survey:

2.3 Results: Following are the results of the consumer survey, focussed group discussions and In depth interviews: 1) Majority of the sample is willing to spend around Rs25 per day on health drinks. 2) People perceive probiotics as a natural product fortified with beneficial microbes and having limited chemical concentration. 3) People associate brand ITC with cigarettes. 4) People are lesser informed about the probiotics and majority have not consumed the existing products. 5) Majority of the sample prefers traditional milk to the processed milk (flavoured, fortified). 6) When it comes to packaged milk products, people have an inclination or loyalty to a brand.

Recommendations

On the basis of analysis done, we recommend the following: 1. Company should launch a sub brand to foray into the probiotics milk market and difference itself from brand ITC. 2. The product should target the middle class, upper middle class and upper class segments as they have greater aspirations and capacity to spend. 3. The product should target Tier 1 cities, where the households experience a busy lifestyle. 4. Probiotics can be positioned as a Nutraceuticals with proven health benefits and zero chemicals. 5. The product can be aggressively promoted as limited information is available to people. The existing players have not utilized the popular media channels and hence the customers are lesser informed. 6. Company can utilize its excellent supply and distribution network to procure the raw milk and market in the high end stores. 7. The product can be priced at a premium, since we are targeting a niche segment. 8. We should not promote the product as a substitute to traditional milk; instead use it as a supplement with added health benefits.

Appendix 1 Questionnaire 1. Do you drink milk? a. Yes | b. No |

2. Which type of milk do you prefer? a. Packaged | b. Unpackaged |

3. Do you look for brand while buying packaged milk? a. Yes | b. No |

4. Are you aware of Probiotic milk? a. Yes | b. No |

5. Would you prefer to buy Probiotic milk products? a. Yes | b. No |

6. How much amount do you spend daily on health drinks? a. 0 – 15 | b. 15 - 35 | c. >35 |

7. What comes to your mind on hearing the word Probiotic? a. Health | b. Money | c. Safe(less chemicals) | d. Others |

8. What part of the day would you prefer having Probiotic milk? a. Morning | b. Evening | c. Night |

9. Do you prefer flavored milk over our traditional milk? a. Yes | b. No |

10. Please arrange the following in order of their importance: a. Control BP | b. Control cholesterol | c. Other’s perception about you | d. Taste |

11. Which company comes to your mind when you hear about Probiotic milk? a. Nestle | b. Amul | c. Mother Dairy | d. Yakult | e. Others |

12. What comes to your mind when you hear about ITC? a. Tobacco/Cigarette | b. Food Additives | c. Apparel | d. Stationary | e. Skin Care |

13. How much are you willing to spend on Probiotic Milk? a. <15 | b. 15 - 35 | c. 35 - 50 | d. >50 |

Bibliography

http://www.ap-foodtechnology.com/Industry-drivers/Indian-probiotics-market-to-quadruple-by-2015, Accessed on: Oct 20, 2010 http://www.business-standard.com/india/storypage.php?autono=35229&tp=on, Accessed on: Oct 20, 2010 http://mofpi.nic.in/ContentPage.aspx?CategoryId=122, Accessed on: Oct 20, 2010 http://www.yakult.co.in/index.php?option=com_content&task=view&id=24&Itemid=41#3, Accessed on: Oct 20, 2010